4 Common Mistakes to Avoid When Extending Credit
Having trouble collecting your delinquent accounts receivables or loans? Regardless whether you are a company or an individual extending credit, what you need to do is have a process in place to carefully manage your credit. This article explains 4 common mistakes to avoid when extending credit. Avoiding these mistakes can help you avoid and/or collect bad debts.
Mistake 1–Not Doing Research on Your Debtor before Extending Credit
- If you are extending credit to a business, see whether the business is legitimate. To operate a legitimate in Maryland or Washington, DC, business, licensing and registration are required. Both Maryland or Washington, DC host websites where you can search for corporate registrations, business licenses, professional licenses, etc. Most other States have similar websites. Additionally, look online for a business website. Most legitimate businesses will have a website. Lastly, you may want to dial the online phone number on the website or look up the address on Googlemaps to make sure that they are both legitimate.
- Perform a credit check on the business or the individual. There are a number of firms that you could use to perform the check.
- Trust your instincts. If you believe that something is not right, hold off providing credit.
Mistake 2–Not Having a Written Agreement
Your credit agreement should be precisely worded. It should contain all of the provisions needed to collect the debt. Some common things to include in the written agreement include:
- The amount of money you are providing to the borrower.
- The rate of interest that the borrower will pay.
- The terms of repayment. You should specify whether repayment be in a lump sum or over a number of months or years.
- What happens if the loan repayment is delayed or not paid back? We recommend provisions for late fees and attorney fees.
In addition, you should consider hiring an attorney to make sure that you are protecting your interests. The Kind & Dashoff Blog contains other important information about written agreements.
Mistake 3–Not Actively Pursuing Debt Collection
An important rule is to not allow debt to become too delinquent. In general, the longer a debt is delinquent, the harder it is to collect the debt. At first, we suggest that you issue dunning letters at fixed intervals. You can mail or email the other dunning letters to your debtor. If the debt is still overdue, call the debtor to discuss the reasons for lack of payment. After each call, record the detail of the call.
Mistake 4–Not Negotiating Collection Terms
During these trying times, it may be necessary to renegotiate the terms of your written agreement. Be flexible. For example, you could agree to accept a longer payment period. If so, document the terms of the payments to be made, as well as any interest adjustments.
We have documented 4 common mistakes to avoid when extending credit. If you have trouble collecting your debt, consider hiring a collection law firm.
Kind and Dashoff, LLC is a law firm and a licensed and bonded collection agency. In addition, they are experts at debt collection techniques and legal remedies in Maryland and Washington, DC. They work hard to collect the money that is owed to you.